March 11, 2020
Concerns over the Coronavirus and COVID-19 are both real and meaningful given the serious resulting health consequences. We’re also seeing the significant impact this health crisis is having on our economy and businesses ability to deliver as disruptions are being felt throughout manufacturing and distribution supply chains globally. We’re also starting to feel the impact more personally – I ordered a new laptop about 2 weeks ago. For something that should have been in stock and delivered in about 4 days, delivery is still forecasted as 4 weeks out because of supply chain issues in China.
Turning to the pricing function, these and other events fueled by the current Coronavirus disruption is an example of why it’s important to set your pricing strategy in advance and have a method to monitor, measure, and adapt in real time — not by month or by quarter end. How well does your strategy fit with present conditions and how quickly can you adapt to possible future circumstances? Planning is key.
Now that we’re in the midst of a turbulent market stressor though, here are four things to consider as you execute pricing through it.
As we’re seeing today with the Coronavirus, emergency circumstances will drive a lot of noise, misinformation, and potentially short-term overreaction. Try to avoid the hype and listen for market signals — true information from your customers and their circumstances. There are different implications for different industries. In this instance, manufacturers have gone lean and global so there are the obvious concerns about plants in China and South Korea. But essentially anytime the supply chain is wide-spread, it’s exposure to disruption is also wide-spread. If you’re in the automotive industry for example, you’ve likely heard that Fiat Chrysler had to shut down a plant in Serbia because they couldn’t get the necessary parts. This was on 14 February. High tech is especially feeling the manufacturing pinch right now. Apple gave guidance for lower quarterly earnings last month because of production problems.
Insert Human Assessment into Standard KPIs
In times of crisis, double check the assumptions in your KPI calculations to make sure you’re not acting on amplifications that don’t actually show root cause of the problems. In Apple’s earning guidance, they also mentioned anticipated, significant demand reduction as a cause for concern. Make sure that the standard reports get you to actions based on root cause or develop measures that deliver clear context. A drop in revenue and profit can be caused by multiple factors: price changes, volume variations, mix considerations, new business, lost business, to name a few. Make sure that everyone understands what is in each of those buckets – and what tactics are appropriate for addressing the problems in light of today’s constraints rather than using the basis that was developed for more “standard-normal” times.
Don’t Rush to Drop Prices
Yes, you need to quickly gather intelligence and assess available information. But the panic of a price war, a bank run, or a market crash is much faster on the way down. Moving things up – reclaiming your market position – takes much more time. The Navy SEAL saying is especially appropriate: slow is smooth, smooth is fast. By having planned and developed your strategies and practiced your response, you can execute with precision – without rushing. And remember, price is not the only way you communicate with your customers. Consider what other aspects of your customer experience could be enhanced and deployed to take pressure off your pricing.
It’s time to Move Away from Spreadsheet Pricing
I’ll be the first to admit it – the first thing I do when trying to organize my thoughts is to open up a spreadsheet. It feels natural for everything from simple lists for sorting options to roughing out some basic what-if scenarios. But if you have more than a few products going to a few customers, you already recognize the futility (and danger) of thinking that pricing for today’s modern enterprise can be managed in a spreadsheet. Think of the complexity of your markets – and that challenge is true even under “stable” conditions. With today’s dynamics, you’ll not only miss opportunity, but you also risk the destruction of value you’ve created in your business model and processes by simply not being able to control and manage actions that are aligned with your strategy. For more on this, read this great post from David Anderson, Don’t Use Excel to Manage Your Pricing.
The bottom line? Use ‘em if you got ‘em! But if you don’t have enterprise-appropriate capabilities for managing your pricing today’s marketplace, sooner is better than later.
For more, download our whitepaper, 5 Simple Best Practices to Take Back Control of Your Pricing.